Based on judgments in the law reports, it seems that family trusts provide rich potential for family squabbles. The decision of the Supreme Court of Appeal in Griessel NO & others v De Kock Case No 334/18, delivered on 6 June 2019, is a typical example. In issue was whether beneficiaries to the trust had vested or discretionary rights and, if the latter, whether they had the right to protect their discretionary interest against maladministration by the trustees. The court found that discretionary beneficiaries have that right.
Two sisters had created the Arathusa Trust in 1999. Its only assets were all the shares in Manyeleti (Pty) Ltd, a company that owned a farm which was part of a game reserve. The beneficiaries of the trust, described as “potential beneficiaries”, appear to have comprised members of the family of the founding sisters. All the potential beneficiaries had been afforded the right to visit the farm with their families for vacations on a rotational basis. When a difference of opinion arose between De Kock, the son of one of the founding trustees, and the rest of the family over the development of the farm for commercial use, the trustees amended the trust deed and removed him as a beneficiary. De Kock approached the High Court for reinstatement, and the matter was settled on the basis that the purported amendment was to be regarded as of no force and effect and invalid. The settlement was made an order of court.
It appears that the parties then entered into a dispute about the terms of the settlement, which culminated in De Kock approaching the High Court again. De Kock sought an order that what he described as his “vested rights” under the trust be reinstated and that the existing trustees be removed and replaced by “independent and impartial” trustees to be appointed by the Master of the High Court. The trustees contended that De Kock, as a “potential beneficiary”, had no vested right in the trust property and accordingly had no rights to protect. The court found that the trustees had unlawfully discriminated against De Kock, because the law did not allow them to withhold the benefit enjoyed by the other beneficiaries simply because the rest of the family “had issues with him”. Accordingly, the court ordered De Kock’s reinstatement as a beneficiary, and further that the Master should appoint an additional independent trustee in consultation with the other family members and “other interested parties”, (without identifying these parties in the judgment). The court made a punitive costs order against the trustees.
Before the SCA the trustees and the other family members sought to appeal against the High Court’s decision and sought a determination of three issues: (i) whether leave to appeal should be granted; (ii) whether De Kock, as a discretionary beneficiary, had acquired rights as against the trustees which were capable of protection; and (iii) if so, whether the court had been correct in granting the reinstatement order, directing the Master to appoint an additional trustee, and issuing a punitive costs order.
The trust deed clothed the trustees with the power in their discretion to allow any beneficiary free use and enjoyment of the property. The trust deed provided that the right of any beneficiary under the trust would vest only on payment or transfer to the beneficiary. This did not include loans to a beneficiary.
Both sided argued on the question whether or not the right of access to the farm afforded to a beneficiary was a vested right. The trustees were at pains to point out that they had not yet selected beneficiaries. No vesting of rights was consequent, so the argument went, on the occasional occupation by beneficiaries. They made much of the fact that the company, not the trust, owned the farm and it was the company that had the exclusive right to allow access to the farm. The court made short shrift of this contention, pointing out that, as the shareholders of the company in their office as trustees, the trustees were making the decisions. This left for consideration the question whether De Kock, as a “potential” beneficiary, had a right to protect.
The court rejected as misplaced De Kock’s submission that he had acquired vested rights. Read in the context of the purpose and the other provisions of the trust deed, the occasional right of use on a rotational basis did not amount to vesting. It then addressed point (ii) above and referred to the SCA decision in Potgieter & another v Potgieter NO & others [2011] ZASCA 181; 2012 (1) SA 637 (SCA) where the court found that: “The import of acceptance by the beneficiary is that it creates a right for the beneficiary pursuant to the trust deed, while no such right existed before. The reason why, after that acceptance, the trust deed cannot be varied without the beneficiary’s consent, is that the law seeks to protect the right created for the first time. In this light, the question whether the right thus created is enforceable, conditional or contingent should make no difference. The only relevant consideration is whether the right is worthy of protection, and I have no doubt that it is. Hence, for example, our law affords the contingent beneficiary the right to protect his or her interest against mal-administration by the trustee…”
Based on this dictum, De Kock was entitled to protect his discretionary right against maladministration by the trustees. The withdrawal from him of the privilege of having a vacation on the farm constituted differential treatment without a justifiable basis, prompted by his attitude towards development of the farm for commercial purposes. A trustee had the fiduciary duty towards all the beneficiaries of a trust irrespective of the nature of their rights. This was so, even if a beneficiary was obstructive and contrarian.
As to the instruction to the Master to appoint an additional independent trustee, the court had this to say: “It is clear that there was a dispute of fact pertaining to [De Kock’s] allegation that the trustees did not attend to the affairs of the trust to the point where a letter of demand was issued against the trust. The court a quo merely stated that the appointment of another independent trustee might quell the acrimony between the parties and restore the role of the trustees to what it should be. The third [trustee] is a chartered accountant by profession and is therefore qualified to properly understand the responsibilities of trusteeship. In the absence of facts conclusively showing that the third [trustee] would not be able to play that role, there is simply no legal basis for an order directing the Master to appoint an additional trustee. The need for the appointment of an additional trustee was simply not established in this matter. In any event, .in terms of the trust deed decisions must be arrived at consensually. That would mean that the family and all the potential beneficiaries have to reach agreement, which obviates any need for the appointment of a further trustee.”
When it came to the punitive costs order, in light of the court’s findings the trustees had had a measure of success. Despite the attempts of De Kock to defend the “unsustainable” punitive costs order, the decision as to costs was that the punitive element was removed from the High Court’s order and the costs of the appeal were to be borne by the respective parties.
The total costs of these two actions must have been astronomical, and one cannot but think that there must have been less expensive ways to resolve a family dispute.
